Our colleague Peter A. Steinmeyer, a Member of the Firm at Epstein Becker Green, has a post on the Trade Secrets & Noncompete Blog that will be of interest to many of our readers in the financial services industry: “Employer’s Waiver Of Non-Compete Period In Order To Avoid $1 Million Payment Held Ineffective.”
Following is an excerpt:
In Reed v. Getco, LLC, the Illinois Court of Appeals was recently faced with an interesting situation: under a contractual non-compete agreement, the employer was obligated to pay the employee $1 million during a six month, post-employment non-competition period. This was, in effect, a form of paid “garden leave” — where the employee was to be paid $1 million to sit out for six months – perhaps to finally correct his golf slice or even learn the fine art of surfing. It was a win-win situation that seemingly would be blessed by most courts; it was for a reasonable length of time, and the employee was set to be paid very handsomely for sitting out. Accordingly, it is doubtful that most judges would have had an issue with it.
Yet here, the employer apparently had second thoughts – and just over a week after the employee resigned, the employer notified the employee that it was waiving the six month non-compete, allowing him to work anywhere, and therefore not paying him any portion of the promised $1 million. …
One option to control such costs is to make explicit in the agreement that the employer has the right to shorten any non-compete or garden leave period, and that the employer also has an accompanying right to proportionately reduce or eliminate any accompanying payment obligation. The absence of such an express contractual authorization was the death knell for Getco in this case.